Will More Newspapers Go Nonprofit?

January 18, 2016

Will More Newspapers Go Nonprofit?

It depends what happens to The Philadelphia Inquirer and the Daily News.

ROBINSON MEYER JAN 14, 2016 TECHNOLOGY

On Tuesday, three of Philadelphia’s most important journalistic resources—its legendary daily newspaper, the Inquirer; its accomplished tabloid, the Daily News; and its main news website, Philly.com—took the first step toward becoming nonprofits.

In a complicated transaction, their owner, H.F. “Gerry” Lenfest, donated them to the Philadelphia Foundation, the city’s main philanthropic organization. Specifically, he donated the Philadelphia Media Network—which owns the papers and the site—to a new subsidiary of the foundation, called the Institute for Journalism in New Media. He also established a $20 million endowment for the new institute.

“Of all the things I’ve done, this is the most important,” Lenfest told Philly.com. “Because of the journalism.”

It’s the first time since the 1970s that a major metropolitan daily has attempted to switch to nonprofit status, and thus the first attempted transition since the advent of the Internet. In the last decade, many people have hoped that journalism, especially local journalism, could survive the web’s erosion of old print-based profits by abandoning the pretense of profit generation in the first place. Instead of living off dwindling subscriptions and ad budgets, newspapers could capitalize on the largesse of local and national donors.
In that light, The Philadelphia Inquirer and its kin can seem like a sign of what’s to come. Will other papers follow them down the nonprofit path?

It depends, in part, on what happens next.

Supporting news through a nonprofit setup isn’t unheard of. In 1936, the owner of the British newspaper The Guardian renounced his shares and transferred them to a trust in order to maintain the paper’s political and financial independence. (In our time, that trust has made some good bets on tech companies and invested in The Guardian’s recently launched American news site.)

Here in the U.S., The Tampa Bay Times has lived under the nonprofit Poynter Institute since 1978. That’s when Nelson Poynter, the paper’s owner, willed control of the paper to what was then called the Modern Media Institute to support the study of journalism. (It was renamed for him after his death.) And more recently, news startups like the civic-minded ProPublica and The Marshall Project, which specializes in criminal-justice issues, have seemed to thrive as nonprofit projects supported by a national array of donors.

But none of those examples will look quite like what’s happening in Philadelphia.

The Tampa Bay Times, for one, was given to the Poynter Institute in order to support the Institute, not the paper. In the late 1970s, the Times, like almost every other morning metro daily, was turning a terrific profit, and Poynter wanted that profit to support the study of journalism.

“These newspapers are going to bring in enormous revenue for a nonprofit, but they’re also going to have every single problem that every newspaper in America has.”
“It was thought that newspapers were licenses to print money,” said Richard Tofel, a news-publishing veteran and the current president of ProPublica. “So Mr. Poynter gave his license to print money to this nonprofit that would engage in all sorts of civic activities.”

“What you’ve seen—and Poynter has been quite transparent about this—is as the newspaper’s profits have faded, the nonprofit has been endangered,” he said.
Nonprofit upstarts like ProPublica also don’t serve as useful comparisons. ProPublica had the benefit of starting as a fresh entity, and it has none of the financial and logistical baggage that accompanies a legacy paper.

“In a print newspaper, an order of magnitude— 85 percent of the costs—are probably spent on things other than news, and only about 15 percent is spent on news,” Tofel told me. “In our operation, conversely, 80 percent of the money we spend, we spend on news. So as a nonprofit investment, you get a heck of a lot more investment for your charitable buck in digital.”

Josh Benton, the director of Harvard University’s Nieman Lab, echoed Tofel’s thoughts. “The Marshall Project is not a new desk at The New York Times covering criminal justice,” he said. “Because as wonderful as The New York Times is, there are elements of its structure, its workflows, its business obligations, its distribution patterns that are tied to being a newspaper.”

Benton also warned that going nonprofit won’t solve any of the revenue problems ailing American newspapers. “A lot of people will look at this and say, ‘Oh, the newspaper is a nonprofit now. Thank god they don’t have to make money anymore!,’” he told me. “These newspapers are going to bring in enormous revenue for a nonprofit, but they’re also going to have every single problem that every newspaper in America has.”

“Newspaper printing is a 19th-century manufacturing business with enormous economies of scale. Put the other way, as it recedes, it has very significant dis-economies of un-scale,” said Tofel. “The biggest single problem [newspapers face] is obviously losing readers to the Internet, but the second-biggest problem is that the economics of their smaller print product get worse and worse.”

The biggest question of the new nonprofit business model was whether the Inquirer could find “funders who will want to pay for print losses,” he said. Both Tofel and Benton agreed that the newspaper’s new $20 million endowment would support about $1 million in losses a year.
But there’s also a question of whether the Philadelphia Media Network will even achieve nonprofit status. In a press release, the network recognized the unusual nature of the deal, comparing it to the complex donation that Ewing Kauffman, the old owner of the Kansas City Royals, arranged to keep the team in Kansas City after his death. In his will, Kauffman gave the team to the Greater Kansas City Community Foundation on the condition that the nonprofit would find a new owner who would not move it to another city.

It took the Internal Revenue Service more than two years to approve Kauffman’s contract—and if Lenfest’s plan runs into trouble, it may also be thanks to the IRS. The tax agency approves nonprofit status for a relatively circumscribed number of organizational aims: Only sports leagues, cruelty-prevention advocacies, public-safety organizations, and groups with a “charitable, religious, educational, scientific, [or] literary” purpose can secure a 501(c)(3) exemption.

Benton said that even some “from-birth” journalistic nonprofits, which usually claim an educational mission under the law, needed years to secure final IRS approval. And even when Poynter donated the Tampa Bay Times in the 1970s, the IRS was skeptical, eventually requiring careful and separate accounting across the entities.

But despite all those issues, both Benton and Tofel were supportive of the attempted Philadelphia transition. “This is an act of great generosity by this man,” Tofel said of Lenfest. This guy could have gotten some amount of money for the newspaper and washed his hands of it. He gave it away.”

Benton added that the Inquirer deal advanced a great tradition in American journalism.

“One of the wonderful things about our journalism ecosystem historically is that it’s very localized,” he told me. “It isn’t all in New York. There are big, powerful newspapers in every major city, and a lot of them do extremely distinguished work and have enormous institutional heft.”

“That diversity’s always been a strength. But we now have all these daily newspapers, 1400 daily newspapers in the country, and there hasn’t been a ton of experimentation to try different models,” he said. Some newspapers have tried going online-only certain days, but by and large they have tried to make old models work by cutting staff.

The Philadelphia Inquirer and Daily News’ transition is good for one main reason, he said: “We’ll be able to see if it works. If it does work, maybe it’ll be tried elsewhere.”

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